Natsam Corporation has $150 million of excess cash. The firm has no debt and 600 million shares outstanding with a current market price of $13 per share. Natsam's board has decided to pay out this cash as a one-time dividend. a. What is the ex-dividend price of a share in a perfect capital market? b. If the board instead decided to use the cash to do a one-time share repurchase, in a perfect capital market what is the price of the shares once the repurchase is complete? c. In a perfect capital market, which policy, in part (a) or (b), makes investors in the firm better off?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Natsam Corporation has $150 million of excess cash. The firm has no debt and 600 million shares outstanding with a
current market price of $13 per share. Natsam's board has decided to pay out this cash as a one-time dividend.
a. What is the ex-dividend price of a share in a perfect capital market?
b. If the board instead decided to use the cash to do a one-time share repurchase, in a perfect capital market what is
the price of the shares once the repurchase is complete?
c. In a perfect capital market, which policy, in part (a) or (b), makes investors in the firm better off?
Transcribed Image Text:Natsam Corporation has $150 million of excess cash. The firm has no debt and 600 million shares outstanding with a current market price of $13 per share. Natsam's board has decided to pay out this cash as a one-time dividend. a. What is the ex-dividend price of a share in a perfect capital market? b. If the board instead decided to use the cash to do a one-time share repurchase, in a perfect capital market what is the price of the shares once the repurchase is complete? c. In a perfect capital market, which policy, in part (a) or (b), makes investors in the firm better off?
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